The Geography of Success

Weak U.S. economic growth continues to be discouraging. But it’s worth taking a look at a few places where things going well for America.

There has been a remarkable resurgence in U.S. oil production over the last few years, with levels now back up to where they were in 1992, though still 28% below the peak reached in 1970.

U.S. field production of crude oil in thousands of barrels per day, Jan 1981 to May 2013. Data source: EIA.

Interestingly, two states– Texas and North Dakota– account for more than 100% of the increase in U.S. production since 2009. While some other states, such as Oklahoma, New Mexico, and Colorado saw modest gains, declines in production from the Gulf of Mexico, Alaska and California were bigger than the combined gains from the states outside of Texas and North Dakota.

Change in oil production between June 2009 and May 2013 for selected areas (thousands of barrels per day)

Region

Change in production

US

2041

Texas

1454

North Dakota

595

US (excluding TX and ND)

-8

Oklahoma

123

New Mexico

117

Colorado

75

California

-41

Alaska

-56

Federal Offshore–Gulf of Mexico

-348

It’s also interesting, and in my opinion not entirely a coincidence, that it is the region in a central swath through the middle of the United States that has been most successful in terms of connecting workers with jobs.

Unemployment rates by county, average over July 2012 to June 2013 (U.S. average = 7.8%). Source: BLS.

Texas and North Dakota accounted for only 8% of all U.S. jobs in 2009, but between them produced 18% of the increase in employment between 2009 and 2013. And the energy boom in these states has clearly benefited their neighbors as well. For example, on a visit to St. Cloud Minnesota last year, I was told that many of the local carpenters and plumbers were commuting to perform work in North Dakota.

Two years ago, I proposed that supply-side policies could be key for future U.S. economic growth. The response of many people was that our economic problem was one of inadequate demand for workers and products rather than inability to produce more on the supply side. But I think the record of the last two years has shown that I was right. Demand for workers and products derives fundamentally from an opportunity for mutually advantageous production and exchange. Finding new ways to produce energy at prices consumers are able to pay is itself an effective program for getting people back to work.

3 Responses to "The Geography of Success"

ThomasGrennes August 26, 2013 at 3:16 pm

Interesting geography. Can the differences in production changes in Texas and North Dakota versus the Gulf and possibly Alaska be attributed to state level decisions vs. Federal government decisions? How does California fit this pattern? Does the Federal government influence offshore drilling and production?

George N. Wells August 27, 2013 at 8:29 am

Interesting conclusions. However, the petroleum deposits experiencing new exploitation have been known for some time. What is different is that drilling technology has made it possible to get to these deposits and the price of crude has increased sufficiently to make the exploitation viable. Also, the expiration of lease options on the properties has to be considered as a factor in the growth in drilling.

The economic equation is not one-sided. As Drucker noted: "A business only exists in the perception of a customer" – without that customer, productivity and innovation have zero value. Of course we return to the basic question of: "Which came first, the demand for the product or the supply of the product?" Perhaps the answer is: "communication" that a need was expressed to another who had been considering a supply.

We have tried, time-and-again, one-sided solutions and always come to grief. It is not a question of supply or demand side, we require both.

Harvey August 28, 2013 at 9:48 pm

I wonder how the change in production numbers are based on percentage change rather than absolute production. Also from my limited reading there are also technical problems that need solving before successfully drilling the Monterey Shale it is not solely a political problem at the present time.